Panel topic: Towards more inclusive science and innovation indicators

Two specific suggestions:

(1) Change the definition of innovation in the Oslo Manual to enable it to ALSO apply to household sector innovation and other economic sectors as well.

(2) Measure household sector innovation!

Eric von Hippel MIT Sloan School of Management

Blue Sky III, Ghent, 2016

Market Research and Production Research Development

Market Diffusion

The definition of innovation in the 2005 Olso Manual fits the Schumpeterian innovation paradigm. That paradigm assumes innovations are developed by producers, and distributed via the market. (Schumpeter 1934)

PRODUCER INNOVATION AND DIFFUSION PARADIGM

“A common feature of an innovation is that it must have been implemented.

A new or improved product is implemented when it is introduced on the market…” (OECD/Eurostat 2005: para. 150)

Market research

Market Diffusion for profit

Self-rewarded Collaborative evaluation/ Peer-to-peer household replication/improvement free diffusiondevelopers

PRODUCER INNOVATION PARADIGM

FREE INNOVATION PARADIGM

R&D

Production

Innovation support

Innovationdesigns

BUT - Individuals in the household sector also innovate - a lot - and do NOT “implement” their innovations via the market. Given the amount of empirical work on household innovation, the time is right for definitions of innovation in all economic sectors. Not only will this support international comparison but it will result in better understanding and measurement of linkages and interactions between the sectors.

What do we know about the scale of household sector innovation?What do we know about the scale of household sector innovation?Tens of millions of consumers spend tens of billions of dollars per year Tens of millions of consumers spend tens of billions of dollars per year developing innovations in just six countries surveyed to datedeveloping innovations in just six countries surveyed to date

– and > 90% let their designs diffuse for free outside the market – and > 90% let their designs diffuse for free outside the market

National surveys

U.K. U.S. Japan

% population innovating

6.1%(2.9 mil people)

5.2%(11.7 mil people)

3.7%(3.9 mil people)

% protecting their innovations from imitators

2% 9% 0%

Total household sector spending

$5.2 billion $20.2 billion $5.8 billion

% of R&D spending by firms on consumer products

140% 33% 13%

43% 37% 11% 9%

How can household sector innovators justify spending private money developing innovations - and then give them away? Answer: They are self-rewarded (only ~ 10% are entrepreneurs)

(Cluster Analysis: Data from survey of 408 innovating citizens in Finland, aged 18-65)

National surveys U.K. U.S. Japan

Few protect via IP 2% 9% 0%

(Data from de Jong and von Hippel 2016)

But - it is not just a matter of getting more accurate counts -

• Innovation in the household sector interacts with producer innovation - and it is important to have a common terminology that applies across sectors.

What are the consequences of not counting free innovations - beyond amount? Free innovators invisibly supply designs to producersThis reduces producer R&D costs - making producer R&D look a lot more productive than it actually is

The effect can be HUGE: In a study of whitewater kayaking innovation, adopting user designs saved producers 3.2X of their entire development budgets

(Hienerth, von Hippel and Jensen 2015)

Free Medical Apps Priced Medical apps Total

49 % free 51% paid N = 1010Average rating per app (1-5 stars)

3.71 stars ** 3.46 stars 3,58 stars

first to introduce a new feature (diabetes)

54% 46%

Average annual downloads per app

36,389 (Median: 5,993)

5,290(Median 1,050)

Notes: ** p = 0.001

In 2016, there are about 70,000 medical Smartphone apps available in the Apple App Store. Of the top 1000 in the Apple App Store by downloads: 49% are given away for free, and 51% are sold at some price (average 5.56 USD).Over half of the apps pioneering novel features are first diffused for free. Under the present definition, they are not innovations until a firm markets them - and then that firm is credited as the innovator.

Source: Goeldner and Herstatt (2016)

In practice, the “on the market” requirement creates confusion

Serious innovations are also first introduced for free. First artificial pancreas in everyday use – design developed by Type 1 diabetes patients and distributed for free.

Dana Lewis who has type 1 diabetes, and her husband, Scott Leibrand, formed a group to develop and diffuse this important medical

innovation ”for free”

The free innovation improves clinical outcomes

#DIYPS @DanaMLewis

Free innovations invisibly complement producer products They increase consumer value – and increase producer profits at the same time

RIDING TECHNIQUES

RIDING HARDWARE

Further interactions between the two paradigms:Free innovations can compete with producer products and increase social welfare

Apache OS web server software(On 38% of websites (2015)

Microsoft commercialWeb server software(On 28% of websites (2015)

New interaction strategies are developed: A division of innovation development labor between producers and users makes sense – producers are learning to supply customers with tools to do even more innovation development

Game a producer sells

Free toolkit to help players innovate

Market research

Market Diffusion for profit

Self-rewarded Collaborative evaluation/ Peer-to-peer household replication/improvement free diffusiondevelopers

PRODUCER INNOVATION PARADIGM

FREE INNOVATION PARADIGM

R&D

Production

Innovation support

Innovationdesigns

What are the consequences of excluding free household sector innovations because they are not “on the market”?Sector interactions become invisible, and distortions are introduced to producer sector measures as we have seen.

(1) Adjust Oslo Manual definition of innovation

Current definition: An innovation is the implementation of a new or significantly improved product (good or service), or process… (OECD/Eurostat 2005: para. 146) A common feature of an innovation is that it must have been implemented.

A new or improved product is implemented when it is introduced on the market… (OECD/Eurostat 2005: para. 150)

Suggested change: A new or improved product is implemented when it is made available to potential users… (Fred Gault, Science and Public Policy (2012)

(2) Initiate regular social surveys of household sector innovation

John Gawalt at NSF says I can convey to BlueSky his group’s “sincere interest in improving our understanding of household innovation, to include the collection of high-quality data.”

–Colleagues and I have now tested and refined a household innovation survey in 7 countries, and offer it freely to all.

–NSF experts have vetted the survey and find it to be of good technical quality – Implementable.

–Social surveys are needed - not enough to add questions to CIS.

New book coming in Dec focused on household

sector innovation.

- eBook freely downloadable

Free user innovators systematically act earlier than producers - and tend to develop the innovations that are functionally novel